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Are You Using Internal RO's to Hit Your Numbers?

We are all trying to hit our year-end numbers. And Internal RO’s are not a new topic. In fact, it is often a heated discussion that the fixed-ops and pre-owned sales manager have given that the sales manager's income can be slashed with mismanaged internal RO’s. It is essential that internal RO’s are tracked in so far as to what the average cost of labor is per RO including the markup for parts. 

Here are the top things to consider when managing internal RO’s 

State Inspections 

Every dealer handles the state inspections differently - depending on your state's rules - however, it is considered best practice to handle state inspections internally. Versus their having to outsource the inspection paying additional fees. Including insuring the vehicle as it is transported to and from the dealer. Not to mention, in most cases you are also having to pay for someone to transport the vehicle. All of which can add up costing thousands of dollars. 

How do you handle State Inspections?

Non-Recommended Work 

For those who are handling repairs internally, there has to be a clear executed policy regarding what additional work will and will not be completed. In most cases, it does not always make sense to spend additional money to fix an unnecessary repair. For example, if you notice that on most of the internal RO’s there are charges for wheel/ball bearings then it could be costing the dealer thousands of dollars - slashing through profits. As the internal RO’s should not count as “profits” in the service lane. I am not saying, though - that all wheel/ball bearing replacements are not necessary. I am offering - however - that the service department needs to be mindful of the unnecessary fixes ensuring that all repairs made were, in fact, a necessary repair. 

Who wants to spend $200+ dollars having a car detailed when you can have an internal team comprised of 2-3 people (at $10+ an hour) handle the job? On average, a dealer only nets $12 out of every $100 in sales. If you are out-sourcing and spending $200+ a car to have it detailed, then you are most likely losing money. And if you are not losing money then you could easily be adding money to your bottom line. It also affords the dealer the opportunity to use the position to handle other jobs at the dealership, which could include lot maintenance regarding the cleanliness of the vehicles. 

Standard Replacements (depending on age/mileage)

If you have standards in place regarding the replacement of windshield wipers & blades, it could save the dealer thousands of dollars annually. Also, the dealer should also have an agreed to brand - in most cases - non-OEM to save money, but ensuring that you are still offering a quality product for the customer. Not having a standard replacement policy in place can wind up costing the dealer hundreds of thousands of dollars in unnecessary costs. 

No Mark-Up’s

Marking up services/units for an internal RO is robbing Peter to pay Paul. Why would you mark-up a service to allow the service department to “net” off of an internal RO? Now - albeit, there has to be a labor cost. However, that labor cost should be a flat cost (per hour), which is deducted from the gross of the vehicle. This not only salvages the grosses on pre-owned vehicles but also lessens the recon cost on a unit. In addition to the fact that it will encourage productivity as they are only making money on labor. It will also encourage more upsells per advisor. If they know they are earning money off of an internal RO then why would they push themselves to sell more? As the internal RO’s could account for a decent portion of their monthly revenue. 

How many internal pre-owned cars do you handle a month? 

Bottom line not managing internal RO’s can cost the dealer hundreds of thousands of dollars in profits. There has to be a cohesive streamlined process, which will not just benefit the dealership's profitability but increase the overall productivity for service. 

How do you handle internal RO’s? Do you allow for there to be a markup for internal RO’s? 

Chris K Leslie

Thats some really good questions. I am going to have to find out now. 

Carolyn Londrigan

There are several reasons you would want to mark up your internals.  You say it is robbing Peter to pay Paul but traditionally salesmen get paid at the highest percentage in the dealership so by increasing the cost less commission is paid to the sales person (sales department can't independently send it elsewhere and get it at cost so why should they get it at cost from another department that is considered a gross profit center.    Service department is trying to maximize their gross as a department.  It would be unfair for them to have to use their resources, bays, equipment and not be able to make fair gross profit to cover those additional costs and resources.  Otherwise it would be wiser for them to decline or at minimum make it the least priority of the shop and concentrate on the money makers.    

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